| Tue 8 Apr 2008, 13:00 | | ELE/AVU - ElementOne Limited /Avusa Limited - Tax |
|
AVU ELE
AVU ELE
ELE/AVU - ElementOne Limited /Avusa Limited - Tax consequences of the unbundling
ElementOne Limited
(Formerly Avusa Limited, formerly Johnnic Communications Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1889/000352/06)
Share code: ELE ISIN: ZAE000115887
("ElementOne")
Avusa Limited
(Formerly Avusa Opco Holdings Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2008/002461/06)
Share code: AVU ISIN: ZAE000115895
("Avusa")
Tax consequences of the unbundling
1. Introduction
In the announcement dated 25 February 2008, shareholders were notified of
the salient dates pertaining to the separate listing and subsequent
unbundling of Avusa ("the unbundling"). The record date to participate in
the unbundling was Friday, 4 April 2008 ("the record date"). Shareholders
holding ElementOne shares would have received their Avusa shares ("Avusa
distribution shares") in terms of the unbundling on or about Monday, 7
April 2008.
Set out below is a summary of the tax consequences of the unbundling of the
Avusa distribution shares. The summary is a general guide and is not
intended to constitute a complete analysis of the tax consequences of the
unbundling under South African tax law. It is not intended to be, nor
should it be considered to be, legal or tax advice. ElementOne shareholders
should therefore consult their own tax advisers on the tax consequences to
them of the unbundling, for which ElementOne and its advisers will not be
held responsible.
2. Tax consequences for ElementOne and its shareholders
The unbundling of the Avusa distribution shares by ElementOne was effected
in terms of section 46 of the Income Tax Act, 1962 (Act 58 of 1962), as
amended ("the Income Tax Act"). Section 46 provides that:
2.1 Distribution of Avusa distribution shares by ElementOne
The distribution will be disregarded by ElementOne for the purposes of
determining its taxable income.
2.2 Secondary Tax on Companies ("STC")
The distribution of the Avusa distribution shares will be deemed not
to be a dividend for STC purposes, both in the hands of ElementOne as
well as any ElementOne shareholder that is a company.
2.3 ElementOne shares held as trading stock
Subject to the provisions of section 46A, which is proposed to be
inserted into the Income Tax Act by section 30 of the Taxation Laws
Amendment Bill 13 of 2008 with effect from 21 February 2008, any
shareholder holding ElementOne shares as trading stock will be deemed
to have acquired the Avusa distribution shares as trading stock and to
have acquired both the ElementOne shares and the Avusa distribution
shares at a combined amount equal to the original cost (as
contemplated in section 11(a) or 22(1) or 22(2) of the Income Tax Act)
of the ElementOne shares. This cost must be apportioned between the
ElementOne shares and the Avusa distribution shares on a pro rata
basis, based on the respective market values of the ElementOne shares
and the Avusa distribution shares at the end of the day after the
distribution of the Avusa distribution shares, being Monday, 7 April
2008.
The market values of the ElementOne shares and the Avusa distribution
shares are the ruling prices of 1 550 cents per ElementOne share and 2
900 cents per Avusa distribution share at the close of business on
Monday, 7 April 2008. Thus, the ratio applicable to the cost in the
determination of any profits or losses derived on any future disposals
of ElementOne or Avusa distribution shares is 34.8% for the ElementOne
shares and 65.2% for the Avusa distribution shares.
ElementOne shareholders will be deemed to have acquired the Avusa
distribution shares on the date on which the ElementOne shares were
originally acquired (other than for the purposes of determining
whether the shares are "qualifying shares" as contemplated in section
9C of the Income Tax Act) and to have incurred the expenditure
apportioned to the Avusa distribution shares on the date on which the
expenditure was incurred in respect of the ElementOne shares.
2.4 ElementOne shares held as capital assets
Any disposals of shares held as capital assets by South African
residents may give rise to a capital gain or loss that will be subject
to capital gains tax ("CGT"). Such a capital gain or loss is
determined by deducting from the proceeds on disposal, the base cost
of the share disposed of.
In the case of ElementOne shares acquired before 1 October 2001, the
base cost may be determined as the sum of either the market value of
the shares as at that date, a value determined on the "time-
apportionment" basis or the "20 per cent of proceeds method" and any
qualifying expenditure incurred on or after 1 October 2001 (as
contemplated in paragraph 20 of the Eighth Schedule of the Income Tax
Act). The base cost of ElementOne shares acquired after 1 October 2001
is the sum of the expenditure actually incurred in respect of the
acquisition of such shares and any other qualifying expenditure (as
contemplated in paragraph 20 of the Eighth Schedule of the Income Tax
Act).
Any shareholder holding ElementOne shares as capital assets will be
deemed to have acquired the Avusa distribution shares as capital
assets. Subsequent to the unbundling, shareholders must, subject to
the provisions of section 46A, which is proposed to be inserted into
the Income Tax Act by section 30 of the Taxation Laws Amendment Bill
13 of 2008 with effect from 21 February 2008, apportion the
expenditure and market value at 1 October 2001 (being R14,31 per
ElementOne share) attributable to the ElementOne shares between the
ElementOne shares and the Avusa distribution shares on a pro rata
basis, based on the respective market values of the ElementOne shares
and the Avusa distribution shares at the end of the day after the
distribution of the Avusa distribution shares, being Monday, 7 April
2008.
The ratio to be used in the apportionment of the expenditure and
market value between the ElementOne shares and the Avusa distribution
shares is 34.8% for the ElementOne shares and 65.2% for the Avusa
distribution shares. This ratio must be used in the determination of
the capital gain or loss derived on any future disposals of ElementOne
or Avusa distribution shares.
ElementOne shareholders will be deemed to have acquired the Avusa
distribution shares on the date on which the ElementOne shares were
originally acquired (other than for the purposes of determining
whether the shares are "qualifying shares" as contemplated in section
9C of the Income Tax Act) and to have incurred the expenditure
apportioned to the Avusa distribution shares on the date on which the
expenditure was incurred in respect of the ElementOne shares.
3. Stamp duties and uncertificated securities tax
The registration of the Avusa distribution shares in the names of
ElementOne shareholders will be exempt from the payment of any stamp duties
and uncertificated securities tax to the extent that the provisions of
section 46 of the Income Tax Act apply to the unbundling.
4. Exempt persons
The provisions of section 46 of the Income Tax Act will not apply to any
unbundling of the Avusa distribution shares with respect to a shareholder
who is not subject to normal tax in South Africa or who is subject to such
tax at a reduced rate as a result of the application of any agreement for
the avoidance of double taxation and who, either alone or together with any
connected person in relation to that shareholder, acquires 20 per cent or
more of the Avusa distribution shares.
5. Non-resident shareholders
ElementOne shareholders who are non-resident in South Africa for tax
purposes are advised to consult their professional advisers as regards the
tax treatment of the unbundling in light of the tax laws in their
respective jurisdictions and any tax treaties between South Africa and
their countries of residence.
Johannesburg
8 April 2008
Investment bank and sponsor
Nedbank Capital
Legal advisers
Werksmans Attorneys
Date: 08/04/2008 13:00:01 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
